What Is FRS 116? A Plain-English Guide to Lease Accounting, Worked Example and Singapore Filing Implications

Does your Singapore company rent an office, a fleet of vehicles or a piece of machinery? Under the current lease reporting rules, most of those contracts must now appear on your balance sheet — not just in your rental expense.

In this blog, we discuss what FRS 116 requires. We walk through a worked example with real numbers. We also explain the filing implications for Singapore companies under ACRA and IRAS rules.

What Does FRS 116 Mean for Singapore Companies?

It is the Singapore financial reporting standard that requires lessees to put nearly every lease on the balance sheet as a right-of-use asset and a lease liability.

The Accounting Standards Council (ASC) sets the financial reporting standards used by Singapore companies. The leases standard took effect for annual reporting periods beginning on or after 1 January 2019. It replaced FRS 17, the previous leases rulebook, and follows the same model as IFRS 16 issued by the International Accounting Standards Board (IASB).

The standard applies to almost every lease a lessee company signs — offices, warehouses, vehicles, machinery and IT equipment. It can also catch embedded leases hidden inside service and supply contracts. Lessor accounting, by contrast, largely carried forward from the old rules.

Companies reporting under the Singapore Financial Reporting Standards (International), or SFRS(I), apply a matching version of the same model. The practical result is simple. If your company controls an asset through a lease, the balance sheet must say so. As one of the member firms of the 3E Accounting International Network, we help clients apply these rules in Singapore and across our global footprint.

How Does a Lessee Recognise a Lease Under the Standard?

At the commencement date, the lessee recognises a right-of-use asset and a lease liability measured at the present value of the lease payments not yet made.

Recognition is not a one-off exercise. The asset depreciates, the liability accretes interest, and remeasurements follow modifications, reassessments and terminations. The steps below show how the mechanics work.

1. Identify Whether the Contract Contains a Lease

A contract is, or contains, a lease if it conveys the right to control the use of an identified asset. The right must apply for a period of time in exchange for consideration. Control means you obtain substantially all the economic benefits from the asset and can direct how it is used.

2. Recognise the Right-of-Use Asset

The asset's initial cost includes the initial lease liability, any payments made at or before commencement, initial direct costs and an estimate of restoration obligations. Afterwards, you carry it at cost less accumulated depreciation, adjusted for any remeasurement of the liability.

3. Measure the Lease Liability

Discount the unpaid lease payments at the interest rate implicit in the lease. If that rate cannot be readily determined, use the incremental borrowing rate instead. That is the rate your company would pay to borrow the funds needed to obtain the asset, on similar terms.

4. Apply the Practical Exemptions

Two carve-outs exist. Lessees may elect to expense short-term leases of twelve months or less, and leases of low-value assets, on a straight-line basis. The exemption table below summarises the position.

What Does a Worked Example of Lease Accounting Show?

A five-year office lease with annual payments of SGD 50,000 in arrears, discounted at 5%, produces an opening right-of-use asset and lease liability of about SGD 216,474.

Worked numbers make the mechanics far easier to follow. The example below uses a simple lease profile that many Singapore SMEs will recognise. Small rounding differences are normal in practice.

Step 1: Gather the Key Lease Terms

Assume a company leases office space for five years with no purchase option or ownership transfer. Rent of SGD 50,000 is payable at the end of each year, and the incremental borrowing rate is 5%. There are no initial direct costs or restoration obligations.

Step 2: Discount the Lease Payments

The annuity factor for five annual payments at 5% is 4.3295. Multiplying SGD 50,000 by 4.3295 gives a lease liability of approximately SGD 216,474 at commencement.

Step 3: Recognise the Asset and Liability

On day one, the company records a right-of-use asset of SGD 216,474 and a matching lease liability of SGD 216,474. Both figures appear on the balance sheet from that date.

Step 4: Record Interest and Depreciation Each Year

Depreciation is straight-line: SGD 216,474 divided by five years, or SGD 43,295 a year. Interest is 5% of the opening liability — SGD 10,824 in year one. The first-year expense totals SGD 54,119, which is heavier than the flat SGD 50,000 rent the old rules would have shown. The schedule below sets out all five years.

What Changed From the Previous Lease Rules?

The old rules split leases into operating and finance types, and operating leases stayed off the books. The new standard replaces that split with a single on-balance-sheet model for lessees.

Before 2019, a company renting office space under an operating lease simply expensed the rent. The balance sheet showed nothing. Investors and lenders had to read the notes to find lease commitments that could be substantial.

The current standard closes that gap. Almost every lease now affects assets, liabilities, profit or loss and the cash flow statement, as the comparison table shows.

For lessors, the classification approach largely carried forward. Companies that lease out assets therefore see far less change than companies that lease them in.

How Does the Standard Affect Your Singapore Filings?

Your financial statements, the XBRL filing with ACRA and the corporate income tax return all feel the effects, in that order.

Recognition is only half the job. The numbers must then flow correctly through Singapore's statutory filing chain. For busy management teams, outsourced corporate services can keep that chain moving on time. The touchpoints below matter most.

1. Prepare Financial Statements Under the Right Framework

Companies registered with the Accounting and Corporate Regulatory Authority (ACRA) must prepare financial statements under the prescribed accounting standards. Whichever framework applies — the full standards, the small-company framework or SFRS(I) — the lease positions must be recognised and disclosed correctly.

2. File Correctly in XBRL With ACRA

Singapore companies file financial statements in XBRL (eXtensible Business Reporting Language) through the BizFin x portal. Right-of-use assets and lease liabilities carry their own tags, so balance sheet totals change. Watch the small company thresholds too — a larger asset base can affect exemption tests.

3. Align Tax Deductions With IRAS Guidance

The Inland Revenue Authority of Singapore (IRAS) generally allows deductions based on contractual lease payments, not the accounting figures. In practice, companies reverse the depreciation and interest entries and claim the rent as it falls due. This follows the current IRAS e-Tax Guide on the tax treatment of leases. Key exceptions apply. A hire-purchase contract follows different rules, and payments not wholly incurred for business purposes may be non-deductible. Check the current IRAS e-Tax Guide, or speak with us, before claiming.

4. Keep Schedules and Disclosures Ready

Statutory disclosures require maturity analyses, interest rates and narrative explanations. Companies subject to statutory audit, and any board reviewing the accounts at the Annual General Meeting (AGM), will expect complete amortisation schedules and renewal records on file.

How Can Your Company Stay Compliant in Practice?

Four habits keep lease reporting healthy:

• Maintain a complete lease register
• Review service contracts for embedded leases
• Document discount rates and key judgements
• Reconcile tax and accounting figures early

In our experience advising clients across our international network, most lease reporting errors come from incomplete records, not difficult maths. The steps below prevent the common problems. If any step feels heavy for your in-house team, contact us — we review lease registers and prepare compliant filings every day.

1. Build a Complete Lease Register

List every lease, renewal option, variable payment and non-lease component in one place. Update the register whenever a contract is signed, modified or terminated, and assign a clear owner to each entry.

2. Review Contracts for Embedded Leases

Service arrangements such as dedicated warehousing, dedicated server capacity or staff housing can contain a lease. The review matters most for businesses with global mobility arrangements, where housing contracts for relocating employees often fall inside the standard's scope.

3. Set and Document Discount Rates

Record how you derived each incremental borrowing rate and keep the evidence on file. Consistent, documented rates reduce queries during review and make later remeasurements defensible.

4. Reconcile Tax and Accounting Figures Early

Map the accounting entries to the IRAS-required tax adjustments well before filing season. Early reconciliation avoids last-minute corrections in the corporate income tax return.

Conclusion

The lease standard changed the shape of Singapore balance sheets. Right-of-use assets and lease liabilities are now the norm, and the expense profile tilts toward the early years of each lease. The worked example shows how a familiar five-year office lease creates an opening liability of about SGD 216,474 and a front-loaded expense pattern.

Filing readiness matters just as much as the maths. Correct XBRL tagging with ACRA, IRAS-aligned tax adjustments and complete disclosures keep the statutory chain clean year after year.

At 3E Accounting Global, our international network of member firms spans Asia, Africa, Europe, North America, South America and Oceania. Together, we help companies build lease registers, prepare compliant financial statements and manage Singapore filing obligations. Speak with us about our one-stop corporate services and let us take the lease reporting burden off your team.

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